The most anticipated earnings report in recent memory from the U.S. mobile industry is coming on Thursday. As has become its custom, T-Mobile(s tmus) will be the last of the Big Four carriers to post its Q1 results, and we’re all curious to see how T-Mobile is doing after its first full year of launching its Uncarrier strategy and whether its shaking up the mobile market as it’s promised.
There’s no question that T-Mobile has performed well since March, when it began a series of radical overhauls of its business model, pricing and marketing. It eliminated contracts and device subsidies entirely, dropped mobile data pricing, launched the industry’s first upgrade program (Jump) and started paying other carriers’ early termination fees to lure over new customers.
But while T-Mobile grew by more than a million subscribers each quarter in the last half of 2013, its competitors (even Sprint(s s)) grew as well. We’ve definitely seen evidence of a newly resurgent T-Mobile, but what we haven’t seen evidence of is a T-Mobile challenging the fundamental business models of its competitors.
We could be seeing evidence of that shift in Q1. The difference this time around is that T-Mobile’s three bigger competitors reported that combined, they lost core phone subscribers in the first quarter.
Verizon(s vz) saw a net loss on about 100,000 in basic phone and smartphone subscribers last quarter for the first time in, well, forever. Sprint had a dismal Q1, shedding nearly 600,000 postpaid and prepaid subscribers. Ironically, AT&T (s t) — the biggest target of Uncarrier and T-Mobile CEO John Legere’s favorite punching bag — had a record quarter, adding 1.1 million new connections. But even Ma Bell saw its growth slow in core phone subscribers. It added more postpaid tablet connections in Q1 than it did smartphones.
AT&T has reacted most aggressively to the T-Mobile threat, retooling its own mobile data pricing and pushing its own Next upgrade program as an alternative to Jump. For a time it even matched T-Mobile’s offer to pay switchers’ early termination fees. Verizon and Sprint could be paying the price for their more subdued responses. We won’t know for sure until tomorrow when we’ll see if all of those lost smartphone subscribers wound up on a T-Mobile plan.
But even if T-Mobile has a stellar quarter in smartphone growth, that doesn’t necessary mean T-Mobile has overturned the market. It could just mean the market is shifting away from it. There are hardly any virgin mobile phone users left in the U.S., and each new subscriber addition is a hard — and expensive — fight to wrest a customer away from a competitor. Meanwhile, it’s becoming readily apparent the next big wave of growth in the mobile will be the connected tablet.
Verizon and AT&T connected nearly 1 million new slate subscribers between them in the first quarter. Despite its 200 MB free tablet data offer, T-Mobile has been far behind the slate curve. In Q3, it grew its tablet base by a mere 5,000 connections, and in Q4 that number only increased to 69,000. T-Mobile isn’t blind to that trend. Its latest additions to Uncarrier focus squarely on the slate.
T-Mobile’s rejuvenation in the market has taken a financial toll on the carrier. The moment Uncarrier launched it started reporting steady quarterly losses, as its grab bag of new promotions and incentives ate away at its margins. Meanwhile, Verizon and AT&T’s profits haven’t noticeably suffered. From AT&T’s perspective, Uncarrier is the best thing that has happened to it since it prompted it to move away from margin-eating contract phone subsidies more quickly.
My hope is that T-Mobile continues to have blowout quarters as it would prompt ever more aggressive reactions from its competitors. The U.S. pays much higher rates for mobile service compared to other developed markets globally.
T-Mobile hasn’t yet triggered the price war we need to even those scales, but it certainly has given the U.S. mobile industry a kick in the ass. As mobile industry analyst Chetan Sharma has pointed out, one kick from a single upstart carrier has set off price wars in other countries around the world.